Australian Wind Industry’s House of Cards Collapsing

With Australia’s wind industry in its death throes, STT has already given fair warning to bankers, investors and shareholders with so much as a cent in wind power companies to grab their cash and get out as fast they can (see our post here).

All-wind-power-outfits – like our favourite whipping boys, Infigen – are losing money hand over fist – and have little more to do than to watch their share prices plummet and await a knock on the door from a receiver or liquidator.

As is often the way, financial troubles spread like a contagious disease – the latest to catch the “bug” is Hydro Tasmania.

STT followers will remember Hydro Tasmania as the bunch of liars and thugs that have ridden roughshod over King Island in an effort to spear 250 giant fans all over the jewel of Bass Strait.

In the first round, Hydro Tasmania promised King Island locals that unless 60% supported their planned project, they would simply abandon it – by dropping their planned “feasibility study” (see our posts here and here). Hydro Tasmania then set about buying the votes it needed to show 60% supporting its project (see our post here).

Those shovelling Hydro Tasmania’s cash out to bribe the locals must have flunked basic arithmetic, because they only managed to muster 58.7% of the vote. But, never mind, Hydro Tasmania simply ignored its earlier promise and launched into its feasibility study, anyway (see our post here). So much for keeping promises.

But, as they say: “what goes around, comes around”.

Hydro Tasmania is losing 10s of $millions on their existing Tasmanian wind farm operations – Musselroe and Woolnorth – and look set to lose 100s of $millions more. And, in the irony of ironies, it’s blaming the Federal Government’s RET Review and the threat that the Government will breach its “promise” to retain the mandatory Renewable Energy Target.

AUSTRALIA’S largest renewable energy producer, Hydro Tasmania, faces projected losses of up to $20 million a year on wind power deals and blames uncertainty surrounding the Renewable Energy Target.

The state-owned company also revealed it had suspended major spending on $3.6 billion in new wind projects in Australia while the target of 20 per cent by 2020 is reviewed by the Abbott government. Hydro Tasmania chief executive Stephen Davy said significant cuts to the RET could see existing wind farms prematurely abandoned and trigger demands for taxpayer compensation.

A planning document, leaked to The Weekend Australian, shows Hydro Tasmania’s power-purchasing agreements for its major Tasmanian wind farms – Musselroe and Woolnorth – will return a $12.5m loss this financial year, rising to $20.6m in 2014-15. Cumulative losses total $103.6m by 2018-19, according to the document, the authenticity of which was confirmed by the company.

Mr Davy blamed the projected losses largely on uncertainty surrounding the RET, being reviewed amid a push from business, industry and elements of the Coalition to reduce or abolish it to cut power prices.

He said the projections were pessimistic and only part of the equation on wind farm profit­ability, but reflected a significant market decline linked to the pending abolition of the carbon tax and uncertainty on the RET. “Since the time the power purchase agreements were negotiated for these wind farms, there has been significant decline in the market, including the impact of the anticipated removal of a price on carbon,” Mr Davy said. “The market decline has been exacerbated by continued uncertainty about the future of the RET. The ongoing review of the RET has created a lot of uncertainty around wind farm revenues.”

Hydro Tasmania is a major player in renewable energy, particularly through its Chinese wind farm joint venture partners Shenhua Clean Energy.

The Musselroe and Woolnorth wind farms are owned by Woolnorth Wind Farm Holdings, a joint venture between the two companies. The companies have $1.6bn in plans to develop, build and operate a further 700MW of wind farms in Australia by 2020. Separately, Hydro, which exports power to mainland Australia, is investigating a $2bn plan to build the southern hemisphere’s largest wind farm on King Island.

As lobbying intensifies ahead of next week’s closure of submissions for the RET review, Mr Davy said all major expenditure on new wind farms was on hold: “We won’t be able to commit large amounts of money further developing those opportunities until the RET is reaffirmed.”

He warned abolition of the RET would kill off all future wind farm developments.The Australian

Isn’t it just delicious to hear an accomplished rent seeker – that couldn’t keep the simplest of the promises it made to King Island locals – whining about the Coalition planning to amend (or scrap) the largest (and, hopefully, the last “great”) corporate welfare scheme in the history of the Commonwealth?

The idea that the 41,000 GWh figure set for the large-scale mandatory RET represents some immutable law – or even an implicit promise to maintain that figure – represents wishful thinking at its very best.

The Renewable Energy Act expressly provides for a review of the target to be carried out every 2 years (click here for the relevant section). To believe that the figure – once set – would only ever be maintained or increased – is naive in the extreme – for a company to base its entire business model on it, is just plain stupid.

What is perplexing, though, is how Hydro Tasmania can blame the RET review for losses already incurred? The mandatory RET is, as yet, unchanged, so how can the mere fact of the review (which was only announced in January this year) have caused any booked-losses at all?

STT suspects that Hydro Tasmania has made some “bone-head” plays with its Power Purchase Agreements and/or by banking on a high and rising price for Renewable Energy Certificates.

One likely scenario, is that Hydro Tasmania set a price in its PPAs based on a REC price significantly higher than the prices actually realised (since November last year, RECs have fallen from around $37 to $27 now); or that it has made some bad calls betting in the REC’s futures market. Either way, to blame a regulatory change that hasn’t happened is complete nonsense.

Having said that, Hydro Tasmania is clearly on to something: for wind power companies, the worst is yet to come.

The Treasurer, Joe Hockey sent the wind industry and its parasites into a tailspin after his recent interview with Alan Jones – when he branded wind turbines “a blight on the landscape” and “utterly offensive”. However, it’s what he went on to say about the “age of entitlement” that has wind power investors quaking in their boots (see our posts here and here).

During the interview, Hockey mentioned Coalition plans to scrap the Clean Energy Regulator (CER). Shortly afterwards it was reported from “government sources” that there were no plans to scrap the CER – and that what Joe was referring to was the Coalition’s plan to scrap the Clean Energy Finance Corporation, which has been on the cards since well before the election last September.

The media heat generated by Hockey’s interview on Alan Jones has stirred more than just passing interest from other Coalition members – who hitherto have had little knowledge of, or interest in, the cost of the mandatory RET or the workings of the CER.

Dozens of Coalition members are now transfixed by the insane cost of the mandatory RET (and the relevance and cost of the CER) – in much the same way that our attention gets drawn to a car crash – no matter how much twisted metal, blood and gore, we find it next to impossible to look away or move on.

The CER – which purports to administer the mandatory RET – is under the control of Environment Minister, Greg Hunt. Since Hockey’s interview, young Greg has been bombarded by his Coalition colleagues demanding to know why he plans to retain the CER at all.

As to the fate of the mandatory RET, one earlier idea floated internally by the Coalition was that the annual large-scale target would be reduced from 41,000 GWh to something between 23-27,000 GWh. That much reduced target would then be met by simply sweeping up anything that vaguely constituted “renewable energy” that hasn’t previously been counted towards meeting the current target. On that scenario, there will be no need for any further renewable energy capacity.

However, the same growing gang of Coalition members calling on Greg Hunt to axe the CER, are now calling for the mandatory RET to be scrapped outright. STT hears that Hunt was told by one member last week: “what are we doing, let’s just kill it now”. Oh dear!

The wind industry is nothing more than a house of cards: remove the coercion placed on retailers by the mandatory RET to take insanely expensive, intermittent and unreliable wind power and it will all collapse in a heartbeat.

Comments

So were these companies expecting the Australian public to continue to ensure their profits are secured indefinitely?
If they cannot function and create their own profits without charging the public via Government handouts on top of what they charge us to purchase their product – a product that is a significant requirement of almost every aspect of our lives, manufacturing and business, then they have a very serious problem with the way they produce their product and conduct their business.
No wonder they are having problems finding people to financially invest in their industry.

Greg Hunt is an academic that believes in computer modelling rather than reality — even if this country follows the Europeans down the path of economic ruin thanks to ridiculous ‘renewable energy policies’ he will never believe it. He is a weak link for the coalitions plan to ‘right the ship’. He really truly believes that the RET and REC won’t cost much even though the empirical data based evidence proves such policies are absolute destroyers of wealth creation and national grids. As for impacts on rural communities his attitude is one of complete contempt. I suspect he and Christine Milne enjoy a nice chat. Its time he turned up for his own ‘party’ meetings and listened to them. He also fancies European ‘grown’ academics than the home grown variety. Canberra public service gossip tells me there is a plot and secret meetings between the CSIRO, the Department of Industry and Energy and the NSW Department of Planning and the ACT government to derail Hockey, Abbott and co in respect to the scrapping of the RET and REC. Forewarned is forearmed!!

Hydro Tasmania seems to have penchant for living life on the edge, so the cow-boys running this outfit shouldn’t be too surprised that the “free” RET money would one day dry up. They made a killing gaming the system when the carbon dioxide tax was introduced:

Trackbacks

[…] As PPAs typically run for 15 years (and up to 25 years) the retailer entering a PPA is making a long-run bet on the REC price. The futures market for RECs reflects the confidence retailers (and other traders) have in the prospective value of RECs. Irrational exuberance has already caught a number of outfits that were banking on the REC price being above $50 by now (it’s currently around $30). One unlucky punter, Hydro Tasmania has already lost millions betting on the RECs futures market (see our post here). […]